China's Major Reforms in Rural Areas and Policy Options

2009-04-16

China's reform was initiated in rural areas. Over the past three decades, the rural reform has attained great success and brought historical changes to the outlook of China's vast countryside. It triggered China's economic reform, offered experiences for the establishment of a socialist market economy, laid the foundation for a fast and continuous development of national economy, and served as a pilot drive for exploring a suitable way to build socialism with Chinese characteristics. As China's economy and society have entered a new developing period, rural reform remains the key field for China's reform, and rural development is still the strategic foundation of China's development.

I. Remarkable Achievements Made through Rural Reform

1. A rural economic system catering to the national conditions and the development of rural productivity has been established

Prior to reform and opening up, agriculture, rural areas and farmers in China were fettered by the people's commune system and the planned economy. Under the collective economic system, farmers couldn't enjoy their right to produce and exchange agricultural products and to dispose their income, which had affected farmers' incentive related to production. Under the planned economy, the state monopolized purchase and marketing and farmers couldn't conduct free exchanges of farm products. As a result, the prices of agricultural products were not decided by the market and the distribution of agricultural resources lacked efficiency. However, rural reform over the past three decades has made great breakthroughs. First, people abolished the people's commune system and established a two-layer management system featuring the integration of centralization and decentralization management on the basis of the household contract responsibility system, and under which farmers are granted with self-management rights. This is a major reform with substantial significance. It established the basic operational system in China's rural areas and activated the rural productive forces. Second, people abolished the state monopoly over purchase and marketing. Farmers could enjoy the right to conduct exchanges of farm produce freely. With expanded circulation channels, the new circulation mode of agricultural products provides a good environment for the development of the market economy. Agricultural product market system specialized with the development of wholesale market has stimulated the emergence of factor markets on land, labor force and capital. The reform has fundamentally changed the rural economic operations, and the market could play an important role in resources allocation. The rural economic development thus became more vigorous and efficient. Third, people transformed the single collective ownership into various private ownerships, under which farmers could dispose their assets on their own will. A new pattern featuring the integration of diverse ownership economies and mixed ownership economy has been formed.

2. The shortage of agricultural products supply ended and the rural economic structure are being continuously optimized

Before reform and opening up, it took almost 29 years to increase the grain production from 150 billion kilogram to 300 billion kilogram. While after the implementation of the reform and opening-up policies, it only took 18 years to raise the grain production from 350 billion kilogram to 500 billion kilogram. Moreover, the agricultural structure has undergone obvious changes, from the former type focusing on grain production to a comprehensive and all-round development of agriculture, forestry, animal husbandry and fishery. From 1978 to 2007, the proportion of the added value of crop production to the added value of agriculture has dropped from 80 % to 56.1 %; the proportion to forestry, has increased from 3.4% to 4.4%; animal husbandry, has increased from 15% to 29.8%; fishery, has increased from 1.6% to 9.7 %. With abundant supply of agricultural products,both urban and rural residents have more choices on food and vegetables purchase. China feeds its 1.3 billion people with only 9% of the world's arable land and 6.5% of the world total water resources. The per capita agricultural products output and consumption are both above the world average level. Since China's entry into the WTO, the export of competitive agricultural products has increased rapidly, and the import of agricultural products also has also increased a lot. The government has switched its concentration from relying on domestic resources and markets to relying on both domestic and overseas resources and markets. From 1978 to 2007, the trading volume of China's agricultural products mounted from US$6.1 billion to US$77.6 billion, a 13 times increase over the 29 years. The export of land-intensive agricultural products has seen a reducing trend while that of the labor-intensive agricultural products has increased steadily. At present, China has become the fourth largest farm products importer and the fifth largest exporter.

The rural economy has seen an all-round development. The proportion of primary, secondary, and tertiary industry of agriculture was adjusted from 84：14.2：1.8 in 1978 to 30.2:54.3:15.5 in 2006. Over these thirty years, many township enterprises have emerged as a new force. According to statistics, the output value of township enterprises was less than one-fourth of the rural total output value in 1978. But in 1987, their output value surpassed the agricultural output value for the first time and accounted for a half, or 52.4% of the rural total output value. At the same time, the proportion of the industrial output value of township enterprises in the national gross industrial output value has also grown rapidly, from 9.1% in 1978 to 16.3% in 1984, and the figure had stood at 36.8% in 1992, accounting for one-third of the total. In 2007, the rural industrial added value was RMB 4,780 billion yuan, representing 44.5% of the country's industrial added value. The growth of township enterprises has strengthened the rural economy and fastened the pace of the country's industrialization and urbanization.

3. A modernized agriculture with an enhancing technical capacity

The number of machines applied in farming has increased rapidly. The total power capacity of farm machinery had gone up by a 5.5-fold from 1978 to 2007. And the number of tractors increased from 1.93 million to 18.34 million. The application of farming machines and equipments has been continuously expanded. China's comprehensive agricultural mechanization level of plowing, seeding and harvesting posted a big jump, from 19.7% in 1978 to 41% in 2007. The use of chemical fertilizers increased by 439.1%, from 8.84 to 47.66 million tons, with an increase of 38.82 million tons. The use of labor force in grain production has been reduced dramatically, from 33.3 working day per mu (15 mu equals one hectare) in 1978 to 8.7 working day per mu in 2006. The effective irrigated area in 2007 was 1.2 times over that of 1978. The contribution rate of scientific and technological progress to China's agriculture had increased from 27% in 1978 to 49 % in 2007.

4. A large-scale transfer of rural labor force

Prior to reform and opening up, only a small part of rural labor force could move from farm work to manufacturing industry or associated sectors. From 1952 to 1978, the proportion of the agricultural output in the country's GDP was down from 45.4% to 20.4%. However, the proportion of rural labor force among China's entire labor force only dropped from 83.5% to 73.8% during the same period, with employment restructuring lagging behind output restructuring. Since the middle of 1980s, township enterprises have emerged as a new force. A large number of rural laborers left the farmland but worked in local township enterprises in their hometowns, showing a large-scale local employment. By 1996, the number of employees of township enterprises had reached 135 million, representing an increase of 100 million compared with the number of workers that served commune- and brigade-run enterprises in 1978. Although since the middle of 1990s, the speed of township enterprises' absorbing surplus labor has slowed down, they still play a major role for the transference of surplus rural laborers. By the end of 2007, there were about 150 million people working in township enterprises, representing 28 % of the entire labor force in China. At present, the proportion of farming labor in rural labor force has dropped to 59.5% from 1978's 92.9%. About 40.5% of laborers are employed in non-agricultural sectors, with 23.2% in secondary industry and 17.3 in tertiary industry.